Tomorrow’s ECB Meeting to set the tone

There is growing expectation that following tomorrow’s meeting of the Governing Council of the European Central Bank, President Mario Draghi will announce that agreement has been preached to commence the withdrawal of additional measures. Draghi’s press conference will be eagerly awaited, and his words dissected for any hidden meaning or concern

This has been something has been demanded by Germany for some time, but Draghi has resisted wanting to keep stimulus in place to assist the weaker nations in their search for growth.

The only possible reason for it not happening now would be concerns over the strength of the currency and the possible after effect of the action. Having said that, it is entirely plausible that the euro could correct following any announcement as we have seen in both the UK and U.S.

The common currency has resumed its journey towards its medium-term target of 1.2520 having already had a healthy correction that shook out he weaker longs yet retained the core positivity.

Sentiment indexes continue to show improvement in the Eurozone, with manufacturing and services PMI due today. The expectation is for an increase over December with services PMI reaching 56.8 and manufacturing 60.8.

Sterling continues to ride the Brexit train

The pound made a fresh 2018 high versus the dollar breaking and more significantly holding above 1.4000 versus a weak dollar. The reason for the rise in Sterling continues to be based upon a growing expectation of a Brexit deal being reached that is both positive and beneficial for the UK.

Amongst the positivity engendered by French President Emmanuel Macron’s worded regarding a “bespoke deal”, the was a note of caution regarding the treatment of financial services as part of the deal for trade and services.

Before the trade deal is discussed, it is likely that the length of the length of the transition period will be agreed, with either two or three years being the most probable outcome.

The employment report is released in the UK later today with a continued strong headline result. Following last week’s inflation data, it is almost certain that the gap between wages and prices will have narrowed a little, but it remains worryingly close to 1%.

The outlook for the pound is clearly inextricably linked to Brexit but the rally has also been magnified by the weakness being exhibited by the dollar which has fallen to multi-year lows with the index breaking 90.00.

A word on Bitcoin

I don’t normally comment on cryptocurrencies as their influences tend to fall outside the realm of my knowledge and experience. The rally then subsequent fall/correction in the value of bitcoin seems to be to be an entirely natural phenomenon in such a new and therefore volatile asset.

To say that Bitcoin price has “bubble” status is something of a misnomer as the token itself is more of a means of transfer of value than an asset in its own right. That is a crucial distinction to make since Bitcoin investment is of itself a show of confidence in the concept rather than any investment decision.

The wider cryptocurrency market is fraught with risks and dangers since the underlying businesses that are being funded by issuance of coins or tokens needs thorough research and investigation but he rise in the value of Bitcoin is driven by an entirely different set of drivers.

Of course, such a new asset class will attract naysayers and they have been crowing recently about how right they have been but in a similar way to the dot com correction, bitcoin will survive and continue to attract support.

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